Crowdfunding Update

We are still patiently waiting for the SEC to develop rules implementing the crowdfunding provisions of the JOBS Act. While we are waiting, the industry prepares for the crowdfunding transactions. Recently, two interesting articles about crowdfunding caught my attention. First, thecrowdcafe.com published an article regarding the status of different crowdfunding platforms. According to the article, many crowdfunding platforms are raising money in preparation for the launch of their portals for non-accredited investors. Below is the list. The most recent and biggest raise by far is CircleUp getting $7.5 million in a Series A.

CircleUp

Seed Round: $1,500,000

Series A: $7,500,000 

Equity platform; San Francisco, CA 

CommunityLeader 

Series A: $850,000 

Equity platform + ancillary products (white labeling being one); Minneapolis, MN 

CrowdCube 

Seed Round: ~$500,000 

Equity platform; UK 

Crowdfunder 

Seed Round: $400,000 

Equity platform; Los Angeles, CA 

EarlyShares 

Series A: $1,150,000 

Equity platform; Miami, FL 

FundersClub 

Pre-Seed: $529,000 

Seed Round: $6,000,000  

Equity platform; San Francisco, CA 

Invested.In 

Seed Round: $880,000 

White labeling platform; Los Angeles, CA 

RealtyMogul 

Seed Round: $500,000 

Real estate platform; Los Angeles, CA 

SellanApp 

Seed Round: ~$193,000 

Revenue-share; Netherlands 

Raised seed round on Symbid, crowdfunding platform based out of the Netherlands 

SoMoLend 

Seed Round: $2.0M 

Debt platform; Cincinnati, OH 

WeFunder 

Seed Round: $550,000 

Equity platform; Cambridge, MA 

Another interesting article that came out on CFO.com discusses what companies can do to prepare for crowdfunding. The concern addressed in the article is that companies may find it difficult to attract VC capital after they raise money through crowdfunding from non-accredited investors. VC investors may be unwilling to deal with numerous small unsophisticated investors. One suggestion is to structure crowdfunding securities so that VCs can subsequently buy out such investors at a certain multiple of their investment. This would provide for a good return on investment for the earlier crowdfund investors, as well as allow VCs to control the investor group. Another proposal is to pool these investors into a collective, so that they vote as a group instead of individually. This may give them more leverage and make it easier for the company and the VCs to manage the investor pool. 

As different methods and approached get tested by various portals for accredited and non-accredited investors, I can’t wait to see how the world of private placements will change once start-ups will be able to raise capital through general solicitation and advertising through crowdfunding portals.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Who Owns #Hashtags?

Proliferation of social media continues to stretch the boundaries of the law and its definitions. It prompts us to apply the proven legal concepts to new technological and social phenomena with no clear and well-defined answers.

A good example is a question of whether Twitter hashtags are anybody’s intellectual property. If yes, then can a non-descriptive hashtag be used as a trademark? Does it mean that we need to expand our trademark searches to include Twitter hashtags?

First, let’s look at the definition of a hashtag. A hashtag is a word preceded by a “#” symbol that was first proposed by Chris Messina to tag topics of interest. Now, hashtags are mostly used to identify discussion forums. If a hashtag becomes popular, it will appear in the “Trends” area of the user’s homepage. Hashtags are used by users to find certain discussion topics, follow these discussions and connect with other users with similar interests.

As far as I know, it is not possible to purchase a hashtag, but one can purchase a hashtag search result through Twitter’s Promoted Tweets product.

Hastags are also frequently used to advertise and promote products, services, events and campaigns. One such example is #OccupyWallStreet. It is also quite popular to use the corporate brand name or trademark as a hashtag to comment on or promote the brand. At times, however, such social campaigns can get away from the company’s original intended use. For example, McDonalds had to pull its hashtag #McDstories only two hours after introducing it, as people starting sharing quite different mcdstories from the ones originally intended by the company. A similar story can be told about Wendy’s #Here TheBeef hashtag.

Although the widespread use of descriptive hashtags as trademarks is unlikely, some companies have started to trademark their hashtags. Trademark law divides trademarks into 45 classes, and the same name or logo can be trademarked by different persons in different classes. It is still unclear, however, how will this use and ability to trademark the same name or a logo but in different classes apply to trademarked hashtags. One would need to register hashtag applications in a particular class of products or services rather than in the class for online forums and communications.

There is also a growing practice of using corporate names as hashtags. The question then becomes: can the corporate name hashtag be used by other Twitter users or does the right to its use belong solely to the company? The answer can be found in Twitter’s Trademark Policy: “Using a company or business name, logo, or other trademark-protected materials in a manner that may mislead or confuse others with regard to its brand or business affiliation may be considered a trademark policy violation.” So, Twitter users should be careful about using other companies’ names as hashtags to promote their own brands or to suggest affiliation, as this may violate Twitter’s policy.

In conclusion, it is still difficult to draw clear boundaries of whether and when a particular hashtag can be used, but one thing is clear: hashtags are available to all Twitter users to use so long as the use does not violate the Twitter Trademark Policy.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.